Does Canada need more investor education, or more advisor education?

March 28, 2014 - 2 comments

At the end of a recent meeting, a client asked me if I ever wonder why everyone in Canada isn’t knocking on PWL’s door. The conversation usually goes that way when people hear the story of our investment philosophy and business model, but it isn’t something that I wonder about. The vast majority of Canadian investors use a financial advisor to invest, and about 75% of Canadian financial advisors are only licensed to sell mutual funds. Getting mutual funds licensed is much easier than getting securities licensed, and finding a commission based job selling mutual funds is much easier than finding a job with an independent fee-based brokerage firm. I started my career in financial services as a commission based mutual fund salesperson. I will be forever impressed by the quality of sales and financial planning training that was given to newly recruited financial advisors, but there was a massive disconnect when it came time to make an actual investment recommendation.

Advisors with next to zero knowledge of financial markets are expected to choose from thousands of available funds while under pressure to make commissions. Making it worse for the client is the fact that only high-fee mutual funds pay the commissions that new advisors need to make a living. With strong sales skills and a knowledge of financial planning the product becomes less important and being a financial advisor becomes a matter of managing relationships, something that people with little to no knowledge of financial markets can do successfully. With a highly skilled and motivated sales force that does not always fully understand what they are selling, and an investing public with minimal financial education, it is obvious to me why Canadians have been relatively slow to adopt low-cost tools like index mutual funds and ETFs. At PWL we get a lot of people coming to us because they are fed up with the fees they have been paying and the service they have been receiving. It’s not always pretty, but we are happy to be the light at the end of the tunnel.

Thanks for your comments. We would also like to see increased protection for investors and PWL advocates passionately for a fiduciary duty for advisors. The Canadian Securities Administrators (CSA) have identified five principles of fiduciary duty:

- Client interest are paramount- Conflicts of interest are avoided- Clients are not exploited- Clients are provided with full disclosure- Services are performed reasonably prudently.

We are puzzled that these principles might be considered contentious by anyone in our industry.

The problem is the investment industry can not police itself. Recently the gov't made changes so when settlements are made by an advisor to a client...the advisor is no longer identified. How does the public know who is actually competent and has their interests as a keystone to decision-making.